Study: Privatized Medicare would raise premiums

Nonpartisan report used hypothetical system similar to the Romney-Ryan proposal.

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Washington • Nearly six in 10 Medicare recipients would pay higher premiums under a hypothetical privatized system along the lines of what Republican presidential candidate Mitt Romney has proposed, according to a study released Monday.

The report by the nonpartisan Kaiser Family Foundation also found striking regional differences that could lead to big premium hikes in some states and counties. That finding instantly made it ammunition in the presidential campaign.

In the senior-rich political swing state of Florida, the hypothetical plan modeled by Kaiser would boost premiums for traditional Medicare by more than $200 a month on average. In Nevada, another competitive state, 50 percent of seniors would face additional monthly premiums of $100 or more for their coverage. A new pattern of regional disparities would emerge from overhauling Medicare's payment system, the report said.

Romney and his running mate, Wisconsin Rep. Paul Ryan, have proposed changing Medicare to a "premium support" system dominated by private plans that are paid a fixed amount by the government. President Barack Obama says replacing the current open-ended Medicare benefit would shift costs to seniors.

Romney's approach would mirror the difference between traditional workplace pensions and modern-day 401(k) plans, in which the employer contribution is limited. While Medicare financing wouldn't be as heavy a lift for taxpayers, the risk is that retirees could end up paying more if medical costs rise.

The study carried a prominent disclaimer: It should not be taken as a specific analysis of the Romney-Ryan proposal, partly because their plan lacks details. However, Kaiser says it is modeled on what Romney and Ryan propose.

"This approach is similar to the premium support proposal included in [House Budget] Chairman Paul Ryan's ... budget proposal for (fiscal year) 2013 that was embraced by presidential nominee Mitt Romney," the report said.

Like the Romney-Ryan plan, government health insurance payments for individual seniors would be tied to the cost of the second-lowest private insurance plan in their geographical area, or traditional Medicare, whichever is less expensive. Seniors could pick a private plan or a new public program modeled on traditional Medicare. But if their pick costs more than the government payment, they would have to pay the difference themselves.

One of the biggest differences, however, is that the report assumes the privatization plan is already in place. Under Romney-Ryan, current beneficiaries and those 10 years from retirement could stay in the traditional system. But the Kaiser study assumed the change has already happened, and all Medicare recipients are already in the new system.

The study also did not model the effects of additional financial help that Romney has promised for low-income seniors and those in frail health, because such details have not been filled in.

The Obama campaign pounced on the findings, while the Romney camp pointed to the disclaimer, saying the report does not reflect the candidate's own plan.

"As the authors stress, this is not a study of the Romney-Ryan plan," said Romney spokeswoman Andrea Saul. "Our plan would always provide future beneficiaries guaranteed coverage options with no increase in out-of-pocket costs from today's Medicare."

The Obama campaign posted a link to the study on its website.

"Under Romney's plan, millions of people especially those with complicated health needs who see a lot of different doctors would have to give up their doctors or pay extra to maintain access to their choices," said Obama spokesman Adam Fetcher.

Kaiser's top Medicare expert, Tricia Neuman, said the organization has been working on the report since the early part of the year, well before Romney picked Ryan as his running mate and cemented his support for the congressman's Medicare overhaul.

Kaiser serves as an information clearinghouse about the health care system. Neuman, a vice president of the group, said the goal is to help inform next year's budget debates, regardless of who is elected president.

Currently about 75 percent of Medicare's nearly 50 million beneficiaries are in the traditional government program, while the remaining 25 percent have opted for private Medicare Advantage plans. The standard Part B premium most beneficiaries pay is now $99.90 a month.

The study's main finding is that changing Medicare from an open-ended program that covers the same benefits across the country will have profound local implications.

Since Medicare spending per person varies dramatically around the country, privatizing the program would create big regional disparities. In high-cost areas, the difference between the second-least expensive private insurance plan and traditional Medicare can be substantial, said Neuman.

Because the government's contribution would be limited under the new system, seniors in areas with high medical costs would see an increase in their premiums for traditional Medicare unless they switch to a low-cost private plan.

In low-cost areas, the reverse would be true: seniors in private plans would pay higher premiums unless they switched to traditional Medicare.

Overall, the study found that 59 percent of all Medicare recipients would face higher premiums if they stick with their current coverage, including about half of those in the traditional program.

In five states  California, Connecticut, Florida, New Jersey and Nevada  more than 45 percent of beneficiaries would pay at least $100 a month more in premiums.

Premiums could also vary within states. In San Francisco and Sacramento counties in the northern part of California, premiums for traditional Medicare would remain unchanged. But to the south, in Los Angeles and Orange counties, premiums would go up more than $200 a month.

"If coupled with caps on the growth in Medicare spending, a premium support approach could make federal (spending) for the Medicare program more predictable but also increase costs and financial risks for beneficiaries over time," the report said.

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